What is a Mutual Fund?
A mutual fund is a financial vehicle that pools money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. Managed by professional fund managers, mutual funds allow investors to benefit from expert management without the need to pick individual investments themselves.
In simple terms: instead of buying shares or bonds on your own, you invest in a mutual fund, and the fund manager does the rest.
How Does a Mutual Fund Work?
- Investors put a certain amount of money into the fund and become unit holders.
- The fund invests this pooled money in stocks, bonds, or other securities, aiming to generate interest, dividends, or capital gains.
- Profits earned by the fund are distributed to investors, while gains from selling investments at higher prices result in capital gains for unit holders.
Mutual funds make it easy for individuals to invest in both equity and debt simultaneously, achieving diversification without complex portfolio management.
Advantages of Mutual Funds
- Professional Management
- Your money is managed by experts who monitor and adjust investments regularly.
- Small investors get access to professional fund management at a fraction of the cost.
- Diversification
- Your investment is spread across multiple assets to reduce risk.
- Losses in one stock or bond can be balanced by gains in others.
- Large funds often invest in hundreds of securities across industries—something hard to achieve individually.
- Economies of Scale
- Mutual funds can buy and sell large volumes at lower costs than individual investors.
- Liquidity
- Units can be sold anytime, just like individual stocks.
- Simplicity
- Easy to invest with small amounts—as little as Rs 500 per month.
History of Mutual Funds in India
- Introduced by UTI in 1963, the mutual fund industry grew rapidly from 1987 with the entry of non-UTI players.
- Over the past decade, Indian mutual funds have improved significantly in quality, choice, and reach.
Types of Mutual Funds
- Open-Ended Funds – Units can be bought or sold anytime.
- Close-Ended Funds – Units are available only for a fixed period.
Further We can classify it as:
1: Equity Funds
2: Debt Funds
3: Hybrid Funds
4: Solution Based
5: Other Schemes
Classification of Mutual Funds
| Equity Schemes | Debt Schemes | Hybrid Schemes | Solution Oriented | Other Schemes |
| Large Cap Fund | Overnight Fund | Conservative Hybrid Fund | Retirement Fund | Index Funds/ETFs |
| Large & Mid Cap | Liquid Fund | Balanced Hybrid Fund | Children’s Fund | FoFs (Domestic/Overseas) |
| Mid Cap Fund | Ultra Short Duration Fund | Aggressive Hybrid Fund | – | – |
| Small-cap Fund | Low Duration Fund | – | – | – |
| Value Fund* | Money Market Fund | Multi-Asset Allocation | – | – |
| Contra Fund* | Short Duration Fund | Arbitrage Fund Scheme | – | – |
| Focused Fund | Medium Duration Fund | Equity Savings | – | – |
| Sectoral/Thematic | Medium to Long Duration Fund | – | – | – |
| ELSS | Long Duration Fund | – | – | – |
| – | Dynamic Bond | – | – | – |
| – | Corporate Bond Fund | – | – | – |
| – | Credit Risk Fund | – | – | – |
| – | Banking & PSU Fund | – | – | – |
| – | Gilt Fund | – | – | – |
| – | Gilt Fund with 10-year constant duration | – | – | – |
| – | Floater Fund | – | – | – |